Why Roblox Is the Metaverse Stock to Buy

Investors have probably heard the word “metaverse” quite frequently in recent weeks, and they may not grasp its meaning or implications.

The term refers to a centralized virtual-reality world where users interact with one another. Think: virtual reality and augmented reality, social media and internet gaming all rolled into one.

Particularly driving the interest in the metaverse is social-media giant Facebook’s  (FB) – Get Meta Platforms Inc. Class A Report decision to rebrand itself as Meta Platforms. It’s clear that this formerly niche area of the tech space is quickly gaining recognition in the mainstream.

So it makes sense to explore the best ways to invest in the metaverse, especially when you consider how technology continues to become further integrated into younger generations’ daily lives.

While Facebook might seem like the obvious pick here, another up-and-coming company stands out as a metaverse stock with similar upside potential.

Roblox  (RBLX) – Get Roblox Corp. Class A Report, the online videogame-development company, shows how technology can connect people of all ages and help create unique experiences in an increasingly digital world.

The San Mateo, Calif., company’s platform relies on user-generated content and enables players to create their own identities in the form of avatars. That’s a true staple of the metaverse.

It’s more than just an online video game – it’s a platform to create games and build a community.

Kids absolutely love spending time in the virtual 3D worlds that Roblox has to offer, and the company’s growth trajectory to date has been impressive.

Here’s why Roblox could be one of the premier metaverse stocks to own — with an important series of caveats.

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It’s One of the World’s Most Popular Games

If you aren’t familiar with Roblox, you probably are older than 16 or you don’t have children.

Half of all Americans under age 16 played Roblox in 2020, and the company’s user base continues to grow at a torrid pace. That’s impressive given how competitive the industry is.

Part of what keeps kids coming back to Roblox is that it’s not just a single game. Developers each month add new games to the platform thanks to its easy to use game development engine. So players never get bored.

Creators have incentives to build more content for the platform since they earn money if their games become hits. Roblox offers 25% of a game’s earnings through its Developer Exchange Program.

The Roblox platform currently has more than 40 million games, 9.5 million developers and, as of the third quarter, 47.3 million average daily active users.

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these numbers should increase as more people worldwide gain access to the internet.

The social aspect of Roblox is also a huge competitive advantage for the company, as children want to play the games that they create with their friends.

Roblox players can connect with other users online and socialize, while some games even require effective communication, teamwork, and problem-solving skills in order to make progress.

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Recent Earnings Point to More Upside

The way the company generates revenue also stands out.

Roblox’s platform is free to try out. But users who want to make the most of their experiences must purchase the company’s in-game currency, Robux.

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Robux are used to purchase upgrades, avatar accessories, subscriptions, premium development plugins, and advertising for developers.

The currency can be purchased at different price points, with an effective exchange rate in the U.S. from 1.25 cents per Robux to 1 cent per Robux if users buy in bulk.

Kids love playing Roblox so much that their parents are willing to consistently provide them with real money that they can exchange for the in-game currency.

The company’s business model certainly benefited from people social distancing and playing videogames during the pandemic. That has concerned a few investors as the world started to return to normal.

But if Roblox’s recent earnings report is any indication, people are definitely still playing.

Roblox reported Q3 revenue of $509.3 million, double (up 102%) the year-earlier figure. That was the company’s 10th consecutive quarter of top-line growth.

Bookings increased 28% year-over-year to $637.8 million, daily active users increased 31% and hours engaged came in at 11.2 billion, up 28%.

While its revenue-growth rate has been slowing, Roblox is still seeing strong user growth and engagement as the pandemic eases. After a strong move to the upside following the earnings release, Roblox stock is attempting to break out of its post-IPO base.

Noteworthy Controversy

While Roblox is intended to allow children to interact in a safe environment, the company ran into controversy about the content available on its platform. 

Although Roblox strictly prohibits any games with sexually explicit material, developers found a loophole that enabled them to create games with sexual content. In some instances, developers also recreated mass shootings on the platform.

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Roblox updated its terms of service to prohibit dating and romantic content and removed the violent content. 

It’s also worth noting that Roblox has parental controls that prevent younger children from entering games for ages 13+, although it’s the parents’ responsibility to turn the feature on. 

Some parents have also spoken out about their children’s Roblox addiction, as kids can become obsessed with the game.

Experts also say that these types of games might slow the development of real-world communication skills, empathy, and more. 

Investors would do well to assess these issues before adding the shares to a portfolio.

All together, Roblox could be one of the best ways to tap into the potential of the metaverse. 

Keep an eye on how the share price reacts to the company’s Investor Day on Nov. 16.